tag:blogger.com,1999:blog-8764541874043694159.post2556081619643995810..comments2024-03-28T07:33:46.151+00:00Comments on Coppola Comment: There's a problem with the transmission.... Frances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-8764541874043694159.post-70125981207412286442013-06-17T12:26:41.187+01:002013-06-17T12:26:41.187+01:00If the Fed doesn't sell bonds after step 3 to ...If the Fed doesn't sell bonds after step 3 to drain the excess reserves added by the deficit spending, the fed funds rate falls.<br /><br />So this statement is incorrect:<br /><br />"Therefore the Treasury deficit spending does NOT mean the Fed has to sell bonds".<br /><br />Here's a different example, following on from the one above:<br /><br />1. The Treasury is currently running a deficit. It raises taxes to balance the budget. Taxes drain reserves from the banking system, putting upward pressure on the funds rate. So the Fed buys bonds, adding reserves to maintain the funds rate.<br /><br />2. The Treasury now has an increased deposit in its account. Banks have no excess reserves, etc.<br /> <br />3. Treasury deficit spends. This adds excess reserves to the banking system.Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-70059506163175701862013-06-16T21:03:24.670+01:002013-06-16T21:03:24.670+01:00OMG....
This is a wash. Reserve movements are ne...OMG.... <br /><br />This is a wash. Reserve movements are neutral across the entire transaction. The differences are TIMING differences. It's the equivalent of running a daylight overdraft at the Bank of England funded with interest-free repo - which banks do all the time. <br /><br />I rest my case. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66790207695984013082013-06-16T20:45:00.270+01:002013-06-16T20:45:00.270+01:00"Your examples showed that Treasury-issued de..."Your examples showed that Treasury-issued debt DID neutralize reserve effects. The differences were timing differences"<br /><br />let's start with the simplest example.<br /><br />1. Treasury sells bonds. <br /><br />Payment for the bonds drains reserves from the banking system, putting upward pressure on the funds rate. <br /><br />As such, the Fed adds reserves to the banking system by buying bonds from banks or primary dealers, so as to maintain the funds rate at its target level.<br /><br />2. The Treasury now has an increased deposit in its account at the Fed. Banks have no excess reserves. The funds rate is at the Fed's target level.<br /><br />3. Treasury spends. This adds excess reserves to the banking system, putting downward pressure on the funds rate.<br /><br />As such, the Fed sells bonds to banks or primary dealers, draining the excess reserves so as to maintain the funds rate at its target level.<br />Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-67615907836436664282013-06-16T17:50:32.433+01:002013-06-16T17:50:32.433+01:001) Yes you are conflating them
2) No it doesn'...1) Yes you are conflating them<br /><br />2) No it doesn't, if the Treasury is covering the deficit spending with its own debt issuance<br /><br />3) Yes it is. Your examples showed that Treasury-issued debt DID neutralize reserve effects. The differences were timing differences.<br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-22662133285447285522013-06-16T17:31:43.244+01:002013-06-16T17:31:43.244+01:00"James, you are still conflating deficit spen..."James, you are still conflating deficit spending with bond issuance". <br /><br />No I'm not.<br /><br />"Therefore the Treasury deficit spending does NOT mean the Fed has to sell bonds"<br /><br />Yes it does, if treasury deficit spending results in excess reserves and the Fed targets a particular positive funds rate. <br /><br />"The Treasury issuing sufficient debt to cover the deficit is enough in itself to neutralize the effect on reserves".<br /><br />No it's not, see my examples above.Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41305541958493698732013-06-07T22:17:39.486+01:002013-06-07T22:17:39.486+01:00James, you are still conflating deficit spending w...James, you are still conflating deficit spending with bond issuance. The two have equal and opposite effects on reserve balances. I explained the mechanism here: http://coppolacomment.blogspot.co.uk/2013/01/central-banks-safe-assets-and-that.html<br /><br />Debt-funded deficit spending is reserve neutral. The spending increases reserves, and the debt issuance drains them by an equal amount. <br /><br />Therefore the Treasury deficit spending does NOT mean the Fed has to sell bonds. The Treasury issuing sufficient debt to cover the deficit is enough in itself to neutralize the effect on reserves. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68182876827250007632013-06-07T21:39:06.261+01:002013-06-07T21:39:06.261+01:00Frances,
say that pre-QE the government was runni...Frances,<br /><br />say that pre-QE the government was running a balanced budget. As usual there would be no excess reserves in the banking system, and the Treasury would have its usual $5 billion balance in the TGA. <br /><br />If the government then went $1 billion into deficit, for example, the TGA balance would go down by $1 billion and the banks would end up with $1 billion in excess reserves. This would put downward pressure on the funds rate. To stop the rate from falling either the Fed or the Treasury would then have to sell bonds, draining the excess reserves.<br /><br />-------------<br /><br />Alternatively, the Treasury could plan to deficit spend $1 billion, and choose to sell bonds in advance. This would drain reserves, putting upward pressure on the funds rate. To stop the rate from rising the Fed would buy bonds, adding reserves to offset the effect of the Treasury's drain. <br /><br />Then, when the Treasury deficit spent $1 billion, the banks would end up with $1 billion in excess reserves, putting downward pressure on the funds rate. Again, either the Fed or the Treasury would then have to sell bonds to drain the excess reserves, to stop the funds rate from falling. Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-39060188192700445572013-06-07T07:54:05.541+01:002013-06-07T07:54:05.541+01:00Got plenty of knowledge regarding transmission sho...Got plenty of knowledge regarding <a href="http://www.warnertransmission.com/" rel="nofollow">transmission shop</a> from reading the post shared above. The company is trying their best to becoming expert in the art of providing such kind of transmission services in those customers who are needy for it. Now a days, several firms are establishing who can provide the same quality comfort to us.Anonymoushttps://www.blogger.com/profile/07401030643084827139noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-54906303094198374262013-06-05T21:07:33.290+01:002013-06-05T21:07:33.290+01:00Three economic factors causing the problems are
1...Three economic factors causing the problems are <br />1) The EMs - BRICS etc, producing vast quantities of quality consumer goods using low labor costs and efficient production methods. Developed nations cannot compete in the manufactured finished goods market and try to make up in luxury goods (Bentley, RR, iPhone etc). But they do not make good the losses - nowhere near. Huge loss of incomes, unemployment, low manufacturing outputs.<br /><br />2) Digital tech shrinks money supply does not increase it (usually) - newspaper and mags selling less, WH Smith in trouble, Pearson in trouble etc - you name it. A digital advance reduces costs but also assets. - automatic supermarket teller machines etc. Digital tech reduces the workforce and there is not a competitive edge because everyone can make the same advances - result asset reduction for same output. A large printing paper machine is an asset written off by a cheap computer system. Tech produces shrinkage of money supply and employment.<br /><br />3) NPLs - bad debts shrinking money supply is deflationary. Impaired loans - we all know the story here. Again a lot of money getting written off - deflationary.<br /><br />People will not take out loans unless they see a profit over time from such an action.<br /><br />As soon as profits become tangible (e.g. from a housing bubble or manufacturing possibilities) then those reserves will certainly be used to take out loans in a big way. But if there is no profit because of 1) 2) and 3) they will just stay as reserves - its no brainer.<br /><br />Ran out of time to complete this (sorry..) :(<br /><br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-43676860498657994422013-06-03T20:14:10.657+01:002013-06-03T20:14:10.657+01:00James,
All the Fed is doing is smoothing out res...James, <br /><br />All the Fed is doing is smoothing out reserve volatility arising from timing differences between Treasury funding and spending. <br /><br />When the Treasury funds ahead of spending, and deposits the difference in the TGA, reserves are drained. When the Treasury spends, reserves are increased. The two are balanced within an accounting period but don't necessarily happen at the same time. Therefore if the Fed took no action, reserve levels would vary with the TGA balance. The Fed does open market operations to balance the reserve changes arising from TGA movements, so that reserves are not subject to sudden swings due to Treasury debt issuance or spending. That does not mean that the Treasury running a deficit results in excess reserves overall. It does not, unless the deficit is financed directly by money creation. The net effect on reserves of debt-financed Treasury spending is zero.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-67115590972393643442013-06-03T20:04:00.360+01:002013-06-03T20:04:00.360+01:00the point is a government deficit normally results...the point is a government deficit normally results in excess reserves within the banking system, which have to be drained through 'offsetting actions' if the Fed targets a particular positive funds rate, and doesn't pay interest on reserves at that target rate: <br /><br />"Treasury net expenditures added reserves to the banking system and, absent offsetting actions, put downward pressure on the funds rate"" <br /><br />http://www.newyorkfed.org/research/current_issues/ci18-3.pdf<br /><br />These 'offsetting actions' to drain excess reserves include open market operations by the Fed, bond sales by the Treasury, and (prior to 2008) Treasury calls on TT&L accounts.<br /><br />"If, in the pre-crisis regime, the Treasury had deposited all of its receipts in the TGA as soon as they came in, and if it had held the funds in the TGA until they were disbursed, the supply of reserves available to the banking system—and hence the overnight federal funds rate—would have exhibited undesirable volatility. To dampen the volatility, the Fed would have had to conduct frequent and large-scale open market operations, draining reserves when TGA balances were declining and adding reserves when TGA balances were rising".<br /><br />http://www.newyorkfed.org/research/current_issues/ci18-3.pdfJamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-52767009785202031592013-06-03T17:25:53.502+01:002013-06-03T17:25:53.502+01:00Exactly as I described. Spending (flows of funds O...Exactly as I described. Spending (flows of funds OUT OF Treasury account) increases reserves, taxation and debt issuance (flows of funds INTO Treasury account) both reduce them. Therefore as government's inflows from taxation and debt issuance balance its outflows over an accounting period, there is no net change in reserves. <br /><br />My version was shorter, that's all. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-85452875663820466412013-06-03T16:53:40.213+01:002013-06-03T16:53:40.213+01:00"Flows of funds between the TGA and private d..."Flows of funds between the TGA and private depository institutions were important prior to the crisis because the TGA is maintained on the books of the Federal Reserve; increases in TGA balances stemming from Treasury net receipts drained reserves from the banking system and, in the absence of offsetting actions, put upward pressure on the federal funds rate. Conversely, decreases in TGA balances resulting from Treasury net expenditures added reserves to the banking system and, absent offsetting actions, put downward pressure on the funds rate".<br /><br />(FRBNY: Current Issues in Economics and Finance 2012)<br /><br />www.newyorkfed.org/research/current_issues/ci18-3.pdf<br /><br />"The Treasury's receipts and expenditures affect not only the balance the Treasury holds at the Federal Reserve, they also affect the balances in the accounts that depository institutions maintain at the Reserve Banks. When the Treasury makes a payment from its general account, funds flow from that account into the account of a depository institution either for that institution or for one of the institution's customers. As a result, all else equal, a decline in the balances held in the Treasury's general account results in an increase in the deposits of depository institutions. Conversely, funds that flow into the Treasury's account drain balances from the deposits of depository institutions".<br /><br />http://www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm<br />Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-34734446984404595862013-06-03T08:32:55.390+01:002013-06-03T08:32:55.390+01:00No it doesn't. Treasury spending makes no diff...No it doesn't. Treasury spending makes no difference to the amount of reserves unless it is directly funded by central bank money creation. No Western government finances itself in this way at the moment. Reserve expansion from Treasury spending is 100% offset with funding by taxation or debt, both of which reduce the level of reserves. It's a wash.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84115800673215597042013-06-03T05:19:29.560+01:002013-06-03T05:19:29.560+01:00in a world of increasing operational scarcity, the...in a world of increasing operational scarcity, the competition engendered leads to the current situation where the winners consolidate and protect their winnings and the rest, the losers are left to go more and more in the direction of slavery and death. this comment relates also to earlier posts...consolidation in a time of increasing scarcity and survival...peter shapirohttp://kinonagare.comnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-16713256950503759222013-06-03T01:58:40.082+01:002013-06-03T01:58:40.082+01:00"Only the central bank can change the total a..."Only the central bank can change the total amount of reserves in the system".<br /><br />When the Treasury spends this increases the amount of reserves in the banking system.Jamesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38470173750575757122013-06-02T22:14:34.501+01:002013-06-02T22:14:34.501+01:00We can agree on that! We can agree on that! Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-34071380404431153002013-06-02T21:52:55.738+01:002013-06-02T21:52:55.738+01:00My take on what is going on now is that, for whate...My take on what is going on now is that, for whatever reason (I have some ideas, but that isn't the main point here), the world has become a riskier place. People asking for loans were overconfident and assuming they would be able to pay, when they weren't. That's why so much debt has had to be written off, and there is still a lot of toxic debt around. I have no reason to believe that this problem has disappeared. The world is still riskier than most people reckon.<br /><br />If this is the real issue, then it looks like there really isn't anything that central banks can do to fix things (correct me if I'm wrong). In fact, trying to encourage lending when in fact loans are more likely to default than ever could make things worse. Everybody seems to assume that a return to normal rates of growth is possible in some way. What if that is exactly the problem? What if it isn't realistically possible to return to what used to be normal rates of growth?<br /><br />Lunahttps://www.blogger.com/profile/05509941922253290982noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-6408723893838539642013-06-02T21:20:04.101+01:002013-06-02T21:20:04.101+01:00Well, ok.
Let's at least agree that Haydn'...Well, ok.<br />Let's at least agree that Haydn's The Creation I'm listening to right now is absolutely fantasticEktrit Kris Manushinoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28827494919303140792013-06-02T20:49:50.504+01:002013-06-02T20:49:50.504+01:00No, Kris. QE was not done by any central bank exce...No, Kris. QE was not done by any central bank except the Bank of Japan in the early 2000s.<br /><br />QE was actually done by the Fed in the 1930s at the height of the Depression, not by central banks during the war years. <br /><br />I think you are confusing QE with monetizing debt and printing money to fund spending. They are not the same thing. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-12047586308861863032013-06-02T20:31:50.478+01:002013-06-02T20:31:50.478+01:00I think my analysis is correct based on countless ...I think my analysis is correct based on countless hours of reading and personal experience.<br /><br />Am I sure? Almost, but not yet fully.<br />Can I prove anything I say? Not yet.<br /><br />It's a process. Everything is a process and we adjust as we go.Ektrit Kris Manushinoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91235822048349774872013-06-02T20:19:21.695+01:002013-06-02T20:19:21.695+01:00I am not trying to convince you or change your min...I am not trying to convince you or change your mind.<br />I am giving you my perspective.Ektrit Kris Manushinoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40146887836572775312013-06-02T20:13:36.870+01:002013-06-02T20:13:36.870+01:00QEs started right after the dot.com crash.
The sto...QEs started right after the dot.com crash.<br />The stock market recovered miraculously.<br /><br />I'll give you 100% crude oil price increase due to Geopolitical problems as it happened in the past, but not 500%.<br />That's why I say $40-50/barrel crude oil is normal which is 100-150% higher than the traditional $15-20/barrel.<br /><br />In principle, central banks' job is QE.<br />What we know as QE is the ..Large Scale Asset Purchase.<br /><br />During WW1 and WW2 the Gov ordered the Fed to do QE, as it is doing now. White House ordering the Fed to do QE.<br />http://www.foxbusiness.com/markets/2010/11/09/fed-breaking-law/<br /><br />Ektrit Kris Manushihttps://twitter.com/ektritnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-1011898469075314032013-06-02T19:58:04.868+01:002013-06-02T19:58:04.868+01:00You cannot blame 10 years of inflation in oil and ...You cannot blame 10 years of inflation in oil and commodity prices on QE, which did not start until 2009 anywhere except Japan. And you are ignoring all the other causes of high oil and commodity prices. Geopolitics, for starters. The secular decline of the US dollar over that time - these things are priced in dollars, remember - and that is not necessarily to do with QE, either (it is much more likely to be due to low policy rates). And the fact that these are among the most rigged markets in the world.<br /><br />There are no counterfactuals. You simply do not know what long-term impact, if any, QE has had on world commodity prices. None of us do. It is far too simplistic to home in on a single cause for price changes. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-31378133446242512442013-06-02T19:32:18.428+01:002013-06-02T19:32:18.428+01:00Oil + Commodity prices are 3 - 5 times as high as ...Oil + Commodity prices are 3 - 5 times as high as in 2003, 10 yrs ago.<br /><br />Y/Y measurement makes no sense to me since super inflation of oil and commodities has ...plateaued due to ..unaffordability of end consumers.<br /><br />When I started to work in this industry, business was great. As soon as commodity prices jumped high, it got extremely competitive.<br />It's extremely tough to finalize a sale. We're doing ok, but it's quite tough.<br /><br />I do both, design and sale. I have to design and sell the project. I speak with hundreds of people on the phone all over North America.Ektrit Kris Manushihttps://twitter.com/ektritnoreply@blogger.com